Why compound growth could be your pension’s secret weapon

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When it comes to saving for retirement, there’s one powerful concept that could make a huge difference to your future: compound growth. Over time, compound growth could help transform your pension savings from a small starting pot into something more substantial that can help you towards the life you want after work – here’s how.

What is compound growth?

Let’s start with the basics. When you invest, the goal is to grow your money over time and hopefully get back more than you paid in – although that’s not guaranteed as the value of investments can go down as well as up. 

Investment growth is the increase in value of your investments over time. So if you invest £1,000 and your investments achieve 5% growth in a year, you’ll have £1,050 at the end of that year. That extra £50 is your investment growth, not accounting for charges or inflation.

Compound growth takes it a step further. In the second year, you don’t just potentially achieve investment growth on your original £1,000 – you also achieve it on the £50 you made in the first year. So now you could be achieving growth on growth. Over time, this could have a snowball effect.

Why it matters for your pension plan

Your pension savings are invested for a long time. You’ll typically start saving into your pension plan when you start working, and you won’t be able to access your savings until you reach age 55 (57 from 6 April 2028). So you might be saving for 20, 30, or even 40 years. That’s a lot of time for compound growth to work its magic.

Here’s why it’s so powerful:

• Time could be your biggest asset: The earlier you start saving, the more time your money has to potentially grow. Even small amounts could turn into big sums over decades.
• Growth on growth: Every year, your pension pot has the potential to grow not just from your contributions, but from the growth achieved on previous growth.
• It rewards patience: The longer you leave your money invested, the more dramatic the compounding effect could become.

Let’s look at an example

Let’s say you invest £200 a month into your pension plan from age 25 to 65, and your investments grow at 5% each year.

• After 10 years, you’d have around £29,400.
• After 20 years, about £73,000.
• After 40 years, your pot could grow to over £232,000.

That’s the power of compound growth. You’ve put in £96,000 over 40 years, but your money has more than doubled thanks to compounding.

Our calculations assume that you’d achieve 5% a year investment growth on your pension savings, and that you’d pay a management charge of 1% per year. Just keep in mind they don’t account for inflation, which impacts how much your money is worth in real terms over time.

What if you start late?

It’s never too late to start saving, but the earlier you begin, the easier it is. For example, if you waited until age 45 to start saving the same £200 a month, there would be £73,000 in your pension pot by the time you reached age 65, which is £159,000 less than you might’ve had if you’d started at 25. According to Pension UK’s Retirement Living Standards, the difference could cover the costs of a single person living a ‘moderate’ lifestyle in retirement for over five years.

How to make the most of it

1.    Start as early as possible – even if it’s just a small amount
2.    Be consistent – regular payments into your pension plan could add up over time
3.    Leave it alone – don’t start taking your pension savings until you absolutely need to
4.    Invest wisely – keep an eye on your pension investments and make sure they’re still doing what you’d expect

Compound growth is like a snowball rolling down a hill – it starts small, but the longer it rolls, the bigger it gets. When it comes to your pension savings, it could turn steady saving into a more comfortable retirement.

So, whether you’re just starting out or already saving, remember: time and compound growth are two of your greatest allies. The sooner you start, the more your future self will thank you.

Ready to take advantage of compound growth?

The more you pay into your pension, the more you could benefit from compound growth over time. If you’ve got a Standard Life pension plan, you can usually increase your regular payments or make a single payment online or through your app.

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If you’ve got a pension plan with us through your employer, the way you top up your regular payments might be different, so check with them first.

The information here is based on our understanding in August 2025 and should not be taken as financial advice.

A pension plan is an investment. Its value can go down as well as up and could be worth less than was paid in.

Calculations assume 5% a year investment growth and an Annual Management Charge of 1%. Calculations do not allow for inflation. Calculations are intended only for the sole purpose of providing an illustration regarding the projection of savings and pensions. They should not be used with the intention to give an accurate representation of real-world outcomes.

Standard Life accepts no responsibility for information in external websites. These are provided for general information.